The federal government spends around $78.9 billion annually on information technology (IT), accounting for over 6% of discretionary spending. However, the IT budget has remained flat in recent years due to budget cuts and efforts to optimize spending through data center consolidation and increased adoption of cloud computing. Nearly half of all federal IT spending goes to the Department of Defense. Cybersecurity is also a priority and the Department of Homeland Security's cybersecurity budget is increasing. The shift to more mobile and virtual work environments could decrease demand for physical office space.

1. Information Technology and the Federal Government
March 2012
Federal IT Spending
Doing More with Less
Jeffrey Kottmeier, Director of Research, DC Region
$80
$79 $79.8
$78 $78.9 The Federal Government spends a significant amount of money on information
$77
$ Billions
$76
$76.5 technology. Indeed, an estimated $78.9 billion is budgeted for information technology
$75
$74 in Fiscal Year (FY) 2013.1 For perspective, total discretionary outlays for the Federal
$73
$72
Government are an estimated $1.3 trillion for FY 2013. That means for every $100 in
$71
$70
discretionary spending, over $6 is spent on information technology.
FY 2011 FY 2012 FY 2013
The mantra for federal information technology (IT) is “doing more with less.” For FY
Source: OMB
2013, the proposed federal IT budget is 1.2% less than that in FY 2012; that is due
primarily to decreases in IT spending by the Department of Defense (DOD). From 2001
to 2009, aggregate IT spending by the government increased at a compound annual
growth rate (CAGR) of 7.1%; the CAGR estimate for IT spending from 2009 to 2013 is
virtually zero. It is also worth noting that recent budget proposals suggest that there will
be realized savings through efficiencies from IT capital investments. In other words,
Federal IT Budgets Flat certain areas of IT will, in fact, see increases in budget authority, but those increases
Total for Major Agencies will be offset by cuts in other areas.
$100 0% CAGR
FY 2009 – FY 2013 Information technology plays a large role in the U.S. defense strategy. Department of
7.1% CAGR*
$80 $79 B
FY 2001 – FY 2009 Defense IT outlays are an estimated $37.2 billion—accounting for 47% of the total FY
$ Billions
$60
2013 federal IT budget—the largest share of any government agency. Additionally, the
$40
Department of Homeland Security estimates $7.1 billion in IT outlays for FY 2013.
$20
$0 It is important to note that the FY 2013 budget is only a proposal and has not yet
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
been approved by the Congress. Remember also that 2012 is an election year.
*Compound Annual Growth Rate Consequently, any budget approval is likely to be delayed by continued congressional
Source: Whitehouse.gov
gridlock. The Federal Government will almost certainly operate under a continuing
resolution which implies similar funding levels as those in FY 2012. The following
outlines some of the Federal Government’s initiatives in IT and the implications on
commercial real estate.
Data center consolidation. In an effort to reduce federal spending, government
Defense Spends the Most agencies have committed to close almost 1,100 data centers by 2015, which will save
President’s IT Budget for FY 2013 an estimated $3 billion. To accomplish this, agencies will analyze current data centers
$40
for ways to enhance their productivity and utilization. Data center consolidation has
$35 $37 already begun, with almost half (525) of the centers expected to close by the end of
$30
Total FY 2013 IT Spending = 2012. Although closures are planned for centers located across the U.S., there is a
$ Billions
$25
$20
$78.9 billion
$15
high concentration of such data centers in the Mid-Atlantic region. In the future, the
$10
$5
government will require agencies to examine existing data centers for capacity and
$7 $6 $4 $3
$0 energy usage. This means that buildings with the best space utilization and highest
Defense Health and Homeland Treasury Veterans
Human
Services
Security Affairs energy efficiency measures will meet future government leasing requirements.
Source: Executive Office of the President of the United States
So far, demand for leased data center space has not felt a significant impact from
federal consolidations, though it may likely suffer an adverse impact going forward. The
extent of such adverse effects is hard to quantify, but could be enough to impact those
markets with a heavy concentration of federal data centers. If there are adverse effects,
federal data center consolidation will impact space leased or owned by third-party
Copyright © 2012 Cassidy Turley. All rights reserved. cassidyturley.com | 1

2. Information Technology and the Federal Government
March 2012
technology and data storage contractors such as BAE Systems, Microsoft and Google. The age and efficiency of data center space
will play a role in determining future demand for specific buildings. In some cases, it is likely that the data center space being vacated
is older, since older centers are becoming functionally obsolete. Future demand will probably require the development of new, highly
sophisticated data centers. These are very expensive to build relative to other commercial product types.
Data Center Closures Cloud computing. Cloud computing entails the delivery
of computing services over a network, typically the
Actual and Planned
internet. In order to streamline systems and applications
and to better utilize technology assets, the Federal Cloud
Computing Initiative was introduced in 2009. In 2011,
U.S. Chief Information Officer Vivek Kundra estimated
that approximately $20 billion—or one quarter of the
Federal Government’s aggregate IT spending—are
potential budget targets for moving to the cloud.2
Agencies with the largest potential for spending on
cloud computing are the Departments of Homeland
Security and Treasury (over $2.4 billion each), followed
by the Departments of Defense, Veterans Affairs and
Transportation.3
The government has the potential of increasing its use
Source: Data.gov of cloud services. According to a recent white paper
released by IDC,4 expenditures for public IT cloud
5
services accounted for the smallest share of government sector IT budgets compared to that of any other sector of the economy.
IDC estimates that governments—federal, state, and local—spent 1 to 1.25% of their 2011 IT budgets on public IT cloud services.
Applying these percentages to the Federal Government’s IT budget, an estimated $765 to $956 million was spent in 2011 on public
cloud services. IDC expects to see increased federal government demand for more private cloud services in the future which will
include email, portal development and collaboration.
By using cloud technology for IT services, the Federal Government estimates it could reduce data center infrastructure expenditures by
30%. Currently, the Federal Government’s server utilization rate is typically less than 30%. Cloud computing would mean improved
server utilization – at 60% to 70% or greater, likely requiring fewer machines that take up less space. But reducing the amount of
equipment could have implications for commercial real estate. Higher server utilization rates could mean decreased demand for the
number of data centers or space allocated for equipment in office buildings. On the other hand, newer technology could drive demand
for high-tech data center development.
Cybersecurity. Cybersecurity is key to our national defense. Even in the face of austerity measures and a decreasing defense budget,
cybersecurity and information technology have been spared. Secretary of Defense Leon Panetta outlined the DOD’s strategy to
President Obama at the beginning of this year6 in which he plans cost cutting measures, but also stated that he would protect (and in
some cases increase) investments in cyber capabilities.
The Department of Homeland Security (DHS) will play a crucial role in cybersecurity. Under the Homeland Security Act of 2002, DHS
set up the Information Protection and Information Security (IPIS) program, which protects IT infrastructure and information. The IPIS
program will drive initiatives in cybersecurity, including programs that collaborate with public, private, and international partners. IPIS
also includes the National Cybersecurity Division (NCSD) which partners with both private and public sector entities to defend against
threats to information technology. Many of these federal programs will generate business with private sector technology contractors.
According to the FY 2013 budget proposal, DHS estimates IPIS program expenditures of $1.167 billion in FY 2013, or approximately
3% of DHS’s total budget. This compares to the $888 million estimated for the IPIS program in FY 2012 and $1.0 billion spent in FY
2011.
cassidyturley.com | 2

3. Information Technology and the Federal Government
March 2012
Healthcare IT. Information technology has become an important part of healthcare. The FY 2013 budget for the Department of
Health and Human Services (HHS) includes an estimated $7.1 billion for IT. As part of the Patient Protection and Affordable Care Act
of 2010 (also known as the Healthcare Reform Act), IT will enable the establishment of State-based Affordable Insurance Exchanges
that are scheduled to be implemented by 2014. HHS will direct part of its budget for resources to build IT capacity and create an
infrastructure for these exchanges. Additionally, infrastructure is needed to provide cost-sharing and insurance premium information.
Companies specializing in IT infrastructure and databases have the potential to garner future business.
Increased mobility. Federal agencies aim to increase federal workforce productivity while becoming more efficient with their real estate
“footprints.” Technology will assist the agencies in reaching these goals. Already, agencies have developed or are developing telework
policies and increasing mobility through the use of technologies such as laptops, smart phones, tablets and the cloud. Additionally,
the Federal Government is using hoteling and virtual workplaces to increase utilization of current office space. According to the U.S.
General Services Administration, today’s prevailing standard workspace average is approximately 190 usable square feet per person,
and the space allocation could hit a mere 60 square feet in the next five years.7
IT Employment, Defense Procurement, and IT-Related Commercial Real Estate
(ii)
IT Services Defense Procurement Exposure to Changes in Fed. IT
(i) Contracts (Bil. $) Spending (iii)
Market Employment As % of Total
(Ths., NSA) Non-Farm
Atlanta 45 2.0% $4.9 Medium
Baltimore 28 2.2% $5.6 Medium
Chicago 49 1.3% $4.3 Low
Columbus 25 2.7% $1.3 Low
Dallas 37 1.8% $5.8 Medium
Denver 24 2.0% $2.4 Low
Detroit 7 1.0% $0.1 Low
Houston 26 1.0% $3.9 Low
Los Angeles 27 0.7% $10.6 Low
Minneapolis 23 1.3% $1.4 Low
New York 49 1.0% $1.7 Low
Northern NJ 12 1.2% $1.2 Low
Omaha 7 1.5% $0.7 Low
Philadelphia 31 1.7% $4.6 Medium
Portland, OR 8 0.9% $0.6 Low
Salt Lake City 9 1.5% $0.9 Low
San Francisco/ Silicon Valley 104 3.8% $6.3 Medium
Oakland 19 2.0% $0.6 Low
San Francisco 37 3.9% $1.0 Low
San Jose 48 5.5% $4.7 Medium
Seattle 29 2.1% $3.1 Low
Washington, DC Metro 148 6.1% $34.7 High
(i)
Select cities/metro divisions. 2011 figures, except Defense Procurement (2010).
(ii)
Includes custom computer programming, computer systems design, computer systems facilities management,
other computer-related services.
(iii)
Based on IT employment and defense procurement.
Sources: BLS, Census Bureau, Moody’s, Cassidy Turley Research
cassidyturley.com | 3

4. Information Technology and the Federal Government
March 2012
Impacts on Employment and Commercial Real Estate. Generally, employment in IT services plays a small role in local labor markets.
IT services in most of the metros studied account for 2% or less of those metros’ workforces. The exceptions are Washington, DC, and
San Jose (Silicon Valley), California in which IT services comprise 6.1% and 5.5%, respectively, of the local labor forces.
Federal IT outlays—especially expenditures related to national defense—have the potential to impact local IT employment and
thus demand for industrial and office space. As mentioned earlier, the DOD accounts for 47% of all federal IT outlays. Defense
procurement—the amount the Federal Government spends on private sector contracts—is well correlated with IT services employment
(R2=0.69). Therefore, metros with a substantial IT services workforce and sizeable defense procurement spending—such as
Washington, DC, San Francisco/Silicon Valley, Dallas, Baltimore, and Atlanta—will arguably have the largest exposure to changes in
federal IT expenditures.
1
Office of Management and Budget. Fiscal Year 2013 Analytical Perspectives, Budget of the U.S. Government, February, 13 2012.
2
The White House. Federal Cloud Computing Strategy, February 08, 2011.
3
Agency estimates reported to the Office of Management and Budget (OMB).
4
Gantz, John, Anna Toncheva, & Stephen Minton. Cloud Computing’s Role in Job Creation, March 2012.
5
Public cloud services include third-party data storage, as opposed to private clouds that are internal to an organization.
6
Statement on Defense Strategic Guidance as delivered by Secretary of Defense Leon E. Panetta, Press Briefing Room, The Pentagon, Washington, DC,
January 05, 2012.
7
GSA Office of Government-wide Policy, Office of Real Property Management Performance Measurement Division. Workspace Utilization and Allocation
Benchmark, July 2011.
Disclaimer
This report and other research materials may be found on our website at www.cassidyturley.com. This is a research document of Cassidy Turley in Washington, DC. Questions
related to information herein should be directed to the Research Department at 202-463-2100. Information contained herein has been obtained from sources deemed reliable
and no representation is made as to the accuracy thereof. Cassidy Turley is a leading commercial real estate services provider with more than 3,500 professionals in more than
60 offices nationwide. The company represents a wide range of clients—from small businesses to Fortune 500 companies, from local non-profits to major institutions. The firm
completed transactions valued at $22 billion in 2011, manages 455 million square feet on behalf of institutional, corporate and private clients and supports more than 28,000
domestic corporate services locations.
cassidyturley.com | 4